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Summary of the impact

Research led by Professor Mazzucato has changed the framework used by UK
and EU policy- makers to design innovation and industrial policy. Her work
on The Entrepreneurial State has influenced how policy-makers
think beyond a `market-failure' framework and use in its place a
`mission-oriented' framework: not only fixing market failures but actively
trying to shape and create markets. This new framework has fed into
specific areas of sector-related policy including life sciences. The
influence has been acknowledged directly in ministerial speeches; cited by
a 2012 Department for Business, Innovation and Skills policy paper; and
discussed extensively in the international media, including lead articles
in The Economist, the Financial Times and Forbes
which have recognised the `heretical' nature of this work.

Underpinning research

Mazzucato's work on the economics of innovation policy has debunked myths
of the state's role in the economy as simply `fixing' market failures, or
at best `facilitating' innovation through horizontal measures — commonly
promulgated by governments worldwide. Her work on The Entrepreneurial
State [see Section 3, R1, R2] points to the ways in which the state
has, through the direct funding of high-risk areas and mission-oriented
planning, provided the courageous, high-risk investments that have led to
the development of new technologies and sectors. The work, funded
initially by an FP7 EU grant, began while Mazzucato was at the Open
University, but was subsequently expanded through a Ford Foundation grant
that Mazzucato received soon after joining Sussex in 2011. This new work
has culminated in a trade book for Anthem [R1] and three journal articles
[R2, R4, R5], as well as various forms of policy papers.

The work argues that major technological revolutions from the Internet to
biotech, to clean-tech today, have required an active `entrepreneurial'
state, willing to support new areas, and take major risks in doing so. In
a detailed study of Apple Computers, Mazzucato [R1] uncovers how every
technology that makes the iPhone so `smart' was `picked' by public-sector
funding (the Internet by DARPA, GPS by the US Satellite programme,
touchscreen display by the CIA, communication technology and the
voice-activated SIRI also by the Defence Department), and traces its
funding back to public sources, with Apple Inc itself also receiving early
support through a public grant (Small Business Investment Company
programme, SBIC).

The examples she provides go beyond military funding, extending to areas
like biotechnology and health, where 75 per cent of the most radical new
medicines come from public funding (e.g. through National Institutes of
Health in the US). She illustrates how the traditional `market-failure'
framework cannot justify such broad-based and heavy support, and indeed
leads to the accusation of `picking winners'. Key messages she highlights
are for government to rely less on tax incentives, and more on direct
support to broadly defined `missions' (putting a man on the moon in the
past, tackling climate change in the future) which will require direct
seed finance to high-growth innovative companies willing to engage with
such high-level missions, and to direct support for new broadly defined
technologies.

Her research has also emphasised how such risk-taking by entrepreneurial
states will inevitably produce many losses: for every Apple there is a
Solyndra (bankruptcy), and thus argues that the state must think more
strategically about how to reap a return on the upside of such investments
to fund such losses, as well as the next round of funding. She has
encouraged policy-makers to consider retaining equity, a `golden share' of
the IPR, or using income-contingent loans/grants.

Indeed, her follow-up study on Apple's business model [R4] has focused on
the need to consider this `risk-reward' problem also by considering the
need to de-financialise the real economy so that the companies earning the
benefits re-invest their profits into production rather than financialised
practices like share buy-backs [R3, R5].

R4 Lazonick, W., Mazzucato, M. and Tulum. O. (2013) `Apple's
changing business model: what should the world's richest company do with
all those profits?', Accounting Forum, 37(4): 249- 267.

R5 Lazonick, W. and Mazzucato, M. (2013) `The risk-reward nexus in
the innovation-inequality relationship: who takes the risks? Who gets the
rewards?', in Mazzucato, M. (ed.) special issue of Industrial and
Corporate Change, 22(4): 1093-1128 Outputs can be supplied by the
University on request.

Details of the impact

Mazzucato's work has changed political discourse about how governments
should drive innovation. As a result of private meetings with ministers,
public presentations, think-tank publications and media appearances, both
the UK government and opposition have taken on board her view that the
state has a more direct role to play in the development of innovative
industries. A letter from the office of Chuka Umunna MP (Shadow Business
Secretary) notes that her work makes a cross party `contribution to
improving the quality of public debate and political discourse' [C1].
Influence on discourse is demonstrated in speeches as well as public
endorsement of her work, but there is also concrete evidence of changing
policies and new government programmes. This influence is felt in Europe
as well as the UK.

In terms of a fundamental underpinning of policy approaches to
innovation, Minister of State David Willetts has cited her work on The
Entrepreneurial State in two recent speeches, where he credits
Mazzucato with introducing into the UK the understanding of the state as
not only fixing markets but also shaping them [C2a/b]. The work was
referenced in BIS's key 2012 growth paper which underpinned the
government's growth agenda [C3] and her influence on the Secretary of
State for Business, Innovation and Skills, Vince Cable's growth strategy
was highlighted in the CBI's Business Voice magazine [C4]. Cable
cited Mazzucato in his August 2013 speech on why he set up the Catapult
Centres, and Mazzucato was invited to present her views alongside Cable at
the launch of the government's Innovation Strategy which took place at
Nesta on 21 November 2012.

Her research has had an impact on the Labour Party's Shadow BIS Strategy,
with the Special Advisor for Chuka Umunna MP stating that his flagship
`Active State' agenda, which culminated in a speech he gave in Liverpool
in March 2012, was greatly influenced by Mazzucato's insistence on a new
framework (C1b). In listing what government must do to nurture
innovation-led growth, Umunna states in this speech "For some, this
might be viewed largely as an extension of the 'market failures'
argument. I'd take that. But it seems to me that there is a difference
between government positively adding new dimensions to the market, and
government simply oiling an existing machine." (C1b).

The work showing the effect of US government investment on Apple has
influenced the government's approach to `picking' technologies for
investment, noted by Willets in the `Our High Tech Future' speech (C2a)
and this has fed through into sector policies. Willett's has acknowledged
Mazzucato's influence not only on his understanding of technologies
needing direct support (the basis of his `8 Great Technologies'
initiative) but also the UK's Life-Sciences Strategy, when he said; "Our
initiatives aimed at bridging the valley of death have been influenced
by Mariana's work that has shown that even in the US government goes
close to market in supporting life sciences. We are now doing the same
in Britain." (C1b). Indeed, her work was referenced in the House of
Commons oral evidence taken before the science and technology committee
`Bridging the "valley of death": Improving the commercialisation of
research' (C5).

The influence of the research has not been restricted to the UK. The head
of policy in the Dutch Ministry of Economic Affairs wrote that: "Professor
Mazzucato's vision has had a significant impact on current policy
discussions in the Netherlands on innovation policy, specifically in
relation to the role of mission-oriented research and the role the
government can have in this area." (C6a) This is the result of
Mazzucato's presentation to the Dutch Ministry of Economic Affairs, and a
direct briefing of the Minister, Herald Kamp in January 2013. Following
her presentation to economists in the department, Mazzucato then recorded
a 15-minute interview for the national TV news (C6b), and a two-page
spread in the NRC newspaper on Feb 3 2012 (C6c). This prompted much
discussion in social and traditional media, these, as acknowledged by
Deputy DG for Enterprise and Innovation, Wessling, `also indirectly
influence policy-making'.

Her work has also had a strong influence in the European Commission,
where Mazzucato sits on two `high level panels' influencing EC innovation
policy. Clara de la Torre, the Director of the EC's DG on Research and
Innovation states in a letter "...your powerful advocacy has motivated
many of my colleagues here and in national authorities and your research
has provided new scientific evidence for the rationale of research and
innovation policies." (C7a). Indeed, the EC chose an interview with
Mazzucato on her thinking to launch its new Horizon 2020 magazine (C7b).

Given the high risks that an active government agenda entails, Mazzucato
has also highlighted the importance of earning back a reward on the
upside, to cover the losses on the downside. In a recent article in Research
Fortnight, it was stated that Mazzucato's work is directly
influencing the way that the Labour Party is considering allowing
government to earn back a return on its investments (C8). Her work on
risks and rewards is highlighted in an influential Report written by the
High Pay Centre (C9) where it is stated that her work presents a framework
for understanding the "relationship between value creation and value
extraction".

One of the key ways in which Mazzucato's work has influenced the
political discourse on industrial policy and post-crisis economic recovery
is through her high profile media activity. Mazzucato has contributed
actively to broader policy and media discussion of industrial policy and
post-crisis economic recovery. In the past eighteen months, she has
appeared twelve times on BBC Newsnight, five times on the Radio 4's Today
Programme (once with Vince Cable), and several times on BBC World News,
Bloomberg and Sky News. She has written regularly for The Guardian
newspaper, and her TedGlobal talk generated extensive coverage from CNN,
Le Monde, NY Times, Forbes [C10].

In the Independent, journalist Margareta Pagano has
written that Mazzucato's work on the role of the government in being the
lead engine of innovation-led growth should be "bed-time reading for all
MPs". In a book review in the Financial Times Martin Wolf
concludes, "This book has a controversial thesis. But it is basically
right. The failure to recognise the role of the government in driving
innovation may well be the greatest threat to rising prosperity."
And most notably, The Economist, which usually depicts the
State as a menace to innovation, admitted in a recent review of her book
in the prestigious Schumpeter Column, "Ms Mazzucato is right to argue
that the state has played a central role in producing game-changing
breakthroughs, and that its contribution to the success of
technology-based businesses should not be underestimated."